massmutual is owned by our policyholders so they matter most to us. massmutual. we'll help you get there. i'm jim cramer, and welcome to my world. >> you need to get in the game! >> firms are going to go out of business and he's nuts! they're nuts! they know nothing! >> i always like to say, there's a bull market somewhere. and i promise -- >> "mad money." you can't afford to miss it. >> hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends. i'm just trying to save you a little money. my job is not just to entertain you but to educate you. so call me at 1-800-743-cnbc. sometimes, sometimes you do get shocked to the upside. sometimes someone breaks through the market's ennui. and when that someone is ben "bull market" bernanke, you get a first-class breakout. ♪ hallelujah with the dow soaring 207 points.
s&p flying 1.63% and the nasdaq vaulting 1.33%. you don't want me to do something and i'm not going to do it. i don't want to get too caught up in fedspeak to describe exactly what ben bernanke did today. some say it's qe-3. others say it's a continuation of operation twist. billions in mortgage bonds to be bought by the fed, pretty much guaranteeing low rates for anyone who wants to do anything with borrowed money including buy, build, or fix up a house. not the way i play it. to me it's important to visualize what bernanke's doing. hence this ridiculous celebrity get-up. because i am a celebrity. you see, bernanke's been trying to get this economy hot enough to spur hiring and send unemployment down for ages. and so far he's had no luck whatsoever. what he needs to do now is light a fire under this economy. and these grills represent the
stages of frustration of the fed chief. you see, he started with the kingsfords. but what did he do? initially he used some very weak lighter fluid. like rate-cutting, modest bond buying, because originally he was worried about the fire getting out of control. but you know what? in true non-fedspeak it was no dice. no jobs created at all. so he ratcheted things up with this qe-2 thing, this round of massive but sporadic bond buying, this time using match light coals. the darn barbecue would catch fire. with this plan using fedspeak he was conducting operation twist. this isn't america. this is cramerica. and in cramerican bernanke was cribbing from the isleys. he was twisting and shouting. of course all that twisting and all that shouting didn't start the fire. so today bernanke decided to
drop the isleys entirely. instead he decided to adopt the approach of jersey's own, bruce springsteen. remember, bernanke taught at princeton for years, although princeton's eating clubs are a far distance from the stone pony in asbury park. uncle ben now realizes you can't start a fire without a spark. he's no longer worried about his little world falling apart, and he's no longer twisting and shouting. he's dancing in the dark! more important, once bernanke gets that spark going, he's throwing gasoline on the fire to ensure that it burns no matter what. oh, oh, oh! tasty. he's not going to stop pouring on the gas, even if we see employment growth, which is the principal reason why this market really took off today. it's not some on again, off again, finnegan match light proposition. it's the real conflagration that's going to fire up this economy for long enough to make sure we start creating jobs. because bernanke knows that's his real mandate at a time of 8%
unemployment. that's why the stock market didn't react with yawns. we know that a permanent gas-inflated fire will succeed in getting the parts of the economy that bernanke can help to stay hot long enough for the companies in these sectors to not only want to hire but at last need to hire. you see, without getting too political, bernanke recognizes like clint at the end of magnum force that a man's got to know his limitations. he can't get china to accelerate its growth. he can't stop the european debt crisis. he can't even create demand. but bernanke can impact supply. the supply of homes, that is. and he can do that by ensuring that mortgage rates stay low. hence the mortgage bond buying program. and he can make bankers feel more confident about making home loans, which believe me is something they're still skittish about doing right now. you make it easier for everyone to buy homes, then the supply of houses is going to go down in a meaningful way. that has two impacts. one is it raises the value of all the homes out there as the glut of houses keeps getting worked off. and two it then stimulates home
building, one of the primary sources of employment in this country. okay. skeptics. they're everywhere. lots of people think that the fed's program isn't working so far. i think that's premature. we're only just now working off that massive housing inventory just now, which is why the stocks of the home builders are indeed roaring. you see them today? we are just now seeing a national increase in housing prices which then creates a wealthier mindset for the two thirds of americans who own homes. when you think your home is increasing in value it makes you feel richer, so you spend more. that's the reason behind the monster retail sales we see. another huge part of the economy. even as employment hasn't yet picked up. it's not like more people are getting jobs, so there's more spending, which is what the traditional thesis would be. it's more people are feeling wealthier, so they're shopping for everything from clothes at macy's and nordstrom's to home goods at pier one and lowe's to cars and trucks from ford and general motors. the wealth effect, it's a beautiful thing. bernanke wants you to refinance. he's just like the boss. he's listening to the american who says man, i ain't getting nowhere, i'm just living in a
dump like this, and he's allowing that guy to get somewhere and get some better digs. and by keeping rates low from now until 2015 he's trying to force money into the stock market. where you can get better returns from higher-yielding stocks. this process like the rebound in housing is playing out exactly in bernanke's direction, too. he's got home prices going back to where they were before housing crashed and he's got stock prices going back to where they were before stocks crashed. it gets better. by keeping rates low and money easy bernanke's suddenly taking down the value of our own currency, the dollar. that should help our exporters be more competitive against the other guys. allows our companies to sell into other stronger currencies to reap bigger profits when that money's repatriated. remember this flame. he's telling you that even if we get a blip up in employment that flame will go out because it can't bridge the fiscal cliff that could be our way, coming our way. so instead he told you up front the gasoline is flowing right through the cliff. now, bernanke, he's real smart. he was peppered with questions at a press conference after the statement was released about whether he's stoking inflation
because gold and oil were up today. up big. he was drilled about the increase about how savers can't make enough money with those low rates. i loved his answers. he said the unemployed can't save anyway until they get a job. and he suddenly implied inflation is a small cost versus permanently high levels of unemployment, which could be the alternative. i heard the gloom and doomers say it wasn't enough. they said it all day. i couldn't believe it. they say you can't change anything. they say it was way too limited, that all this dancing in the dark means nothing. to which i say, huh? every politician has the right to ask, are you better off than you were four years ago. many say the answer's no. but if you own stocks, unless you own the real bad ones and nothing but, the answer's a resounding yes. especially after a day like today. and that's ben bernanke's gift to you. here's the bottom line. today bernanke acknowledged you that can't start a fire without a spark. and you can't keep that fire going unless you pour on gasoline and keep pouring it on for as far as the eye can see.
i'm not by any means saying it's time to break out the franks and burgers just yet. but the message keeps getting clearer that i smell the smoke wafting from the big brilliant ben bernanke bond barbecue. john in new york. john. >> caller: boo-yah. >> boo-yah, chief. >> caller: how's it going, jimmy c.? >> really good, partner. how about you? >> caller: excellent. excellent. first i want to thank heather and all of your staff for the hard work they do. >> the staff is great. they make me look great every day. i'm not kidding. they actually do. including a lot of times i wear clothes they get me that are really quite -- well, like brioni. >> caller: oh, they're wild. >> thank you. >> caller: and i'd also like to thank you for keeping me diversified. it really helps out, especially when the market drops. >> well, i'm glad you say that because today was a day where diversification probably let you not beat the market, but i'm glad you recognize that there's a lot of bad days and it does save you some percent. what's up? >> caller: absolutely. okay.
the stock i'm calling about is boeing. and i know you touched on it a bit yesterday. but with the recent proposed merger between b.a.e. systems of britain and eabf, the parent of airbus, that would make them the largest player in the aerospace industry and the fact that boeing has been more or less straight-lining since the beginning of the year -- >> right. it has not done much. >> yeah, no. and i'm just wondering, should these observations be a cause for concern? is the dreamliner going to be a sufficient catalyst? >> let me give you two thoughts on this. one is that they have a big product cycle. i followed boeing for 30 years. when they have a big product cycle you get multiple years of gain. secondly, if the world improves, which is what seems to be happening in europe, which may be china stimulus, united states, then there's room enough for everybody. i think boeing is a dirt cheap
stock and i really urge people to buy this. i've been doing it for my charitable trust. let's go to ira in california. ira. >> caller: hey, jim, this is ira, former marine corps captain serving in the first gulf war and a resident of passaic, new jersey. i've got a question about annaly. i want to do it as quick as possible so i don't get cut off over here. >> no, that's okay. >> caller: prior to the fed coming out this morning i saw a downgrade from some loon that has a $15.50 target on it and its concern is they only have a 50% profit margin versus chimera and angc which has 90% and 87%. enough of that. >> right. >> caller: my questions are -- i've got two little questions. i always do my research, but one thing i don't understand is now that the fed came out and he's buying back mortgage-backed securities at a rate of $40 billion a month --
>> right. >> caller: -- one, i don't know how that's going to affect annaly long term with any prepayments -- >> okay. good. first of all, thank you for serving. the main thing you have to recognize is that annaly is not a mannequin. they have a thinking guy at the top of the organization, mike farrell. and they have found ways to make money in all sorts environments. that's why you've got to stick with annaly and ignore the downgrades. thank you for that thoughtful question. okay. bruce. ben got it cooking today. all right? he's pulling out all the stops. and this market does feel better for it. remember, ben understands the boss. he understands you can't start a fire without that spark. ben gets it. i don't think these guys do. stay with cramer. ♪ >> announcer: coming up, pitfall? shares of joy global have been in a ditch this year. will concerns of slow growth continue to keep it down?
or could new demand from china help dig itself out of the hole? cramer finds out when he speaks to the ceo. and later, heartbreaker? break-ups mean more than sappy songs and heartache. we're talking cold, hard cash. which big name in industrial construction could bring out massive value by taking a wrecking ball to its corporate structure? cramer's digging for answers. plus, damaged goods? when corporate bigwigs walk, sometimes it pays to follow them out the door. two companies with recent high-profile departures. are their stocks lurking in your portfolio? find out when cramer takes them from the board room to solitary confinement in "the sell block." all coming up on "mad money." >> don't miss a second of "mad money." follow @jimcramer on twitter. have a question?
one thing's for certain in this business. you can't afford to wait around for an all-clear signal telling you it's safe to buy. because by the time that signal comes it will be too late. the stock you're looking at will already have run and you'll have missed the move. that's why when you're dealing with an industry that's been crushed and you think it could be about to turn around you have to buy before that turn is confirmed. because once everyone knows the comeback is for real the big money will have already been made. in other words, you need to buy just when things seem most horrible. which brings me to joy global. j.o.y. the maker of mining equipment, especially for coal mines, that's been telling a grim story for a while now. the stock has been pounded accordingly for most of the year. joy's facing short-term problems all over the place. china, the world's biggest consumer of coal is weak. and the coal market is hideous due to the cheapness of natural gas in america. the company reported if
things stayed this way next year could be worse. however, there are some positives. the economy seems to be picking. the chinese economy has announced they'll be spending boatloads of money on infrastructure. if they ever start cutting rates aggressively joy global would shoot through the roof base much like how it rallied today based on qe-3 from ben bernanke. the chart is the best in the book. could this be an always darkest before the dawn situation? let's check in with mike sutherlin the president and ceo of joy global and one straight shooter, find out more about how his company is doing. mr. sutherland, welcome back to "mad money." >> thanks, jim, thanks for having me. >> i go through the august 29th conference call and i come back with two things. one is things aren't so hot. but the second one is as of the last few weeks before the call we're seeing some turns. both natural gas going higher in the united states, making coal a little more advantageous, and using some signals that you follow closely in china, maybe some improvement there in july. has it continued along these positive lines? >> yeah, jim.
we continue to believe that the markets, both in the u.s. and china, have sort of found their bottom and they're beginning to move sideways right now. which is good because it's indicating a sign of stability. we do see upside in both markets, and probably more evidence of that in the u.s. market right now because it took the decline sooner than china. but we have a lot of indicators that tell us that china's going to be stabilized for a while and begin to recover as well. so we feel pretty good about both markets. i just want to add that our business is largely driven by after-market, which is much more stable than original equipment. we do see volatility out of these markets on project expansions, which drive the demand for original equipment. the after-market is much more stable for us and gives us that stability overall. we carry good backlogs right now. that also gives us time to make strategic rather than instantaneous adjustments to the market. >> in the 2008-2009 great recession how much did the after-market help you in order
to smooth out earnings? >> the after-market was fantastic. we saw in that time everything went dark on us and we saw the after-market come down in the 10% to 15% range where we saw original equipment demand declines by 50%. now, we used that to stabilize the business. we use our backlog to give us time to make rational decisions. and as a result we actually trimmed up the business, reduced our cost base, and we were much better positioned as we went into 2010. >> but you still said you think if things continue that you will be flat to down slightly. when i say slightly, probably the single-digit range still at this point. and you're sticking by that if things stay steady, that you will not have an up year. >> what we're seeing right now if we look at our last two quarters, we saw two quarters that didn't have any project revenue. and that indicates to us sort of like a base-level business. we do see a number of projects
continuing to work through our project pipeline. we're very optimistic about project flow. it may not be as high as people thought it was six months ago, but there is project flow, and we feel very comfortable with that. that's going to give us a number that's going to be flat to slightly down. when i say slightly down, single digit kind of downs as we look at 2013. so with that we have opportunities to improve our business and we are looking for ways to trim the business, streamline some costs, consolidate and take cost efficiencies in some areas. and we believe that we can continue to improve earnings as we go through this flat period. >> now, mike, you're the only one that has seen actual granular data that you say is positive in china. and i know what you use and i think it's terrific and i want to go into it. which is that you say there's an interesting phenomenon going on in china. we saw, we have seen, continue to see imports up in china. but then you talk about you saw electricity pick up nicely in july. talk about your electricity indicator. seems a lot more honest than a lot of the other things we hear out of china.
>> well, we've seen the electricity demand this year in china slow down. it's still growing at 5% to 6%, which is, you know, much higher than any place else in the world. but it's down from 10% or 11% growth the last couple years. relative to last year and the year before it has slowed down. and we saw the second quarter in particular that was quite soft for power demand. but partly driven by the slowing economy in china. and as a result of that we saw very little growth in power demand. it picked up quite nicely in july. we saw power demand improvement of around 15%. and we start to see a recovery in power demand as we get into the summer cooling season and as we move into the winter we'll see further increases in power demand. we're seeing in china at the same time that was happening in the power demand, we saw the continuation of imported coal and we saw domestic coal begin
to reduce production rates. and that's a good indicator to us that domestic production, probably a surprise to many people, is high-cost production. so that gives us a great indicator that china now is structurally dependent upon imports, and we think that that's really good for the seaborne markets over the long term. >> just one of those questions so people understand seaborne markets, you talk about how we're building infrastructure in this country to be able to export coal so rather than just freak out coal utilities are being shut down here, we're actually building the way to be able to get the coal from here to china. >> well, two things are happening. despite the slowdown in coal-fired power generation in the u.s. and europe, we have 375 gigawatts of coal-fired power capacity being built around the world, and most of that is in developing asia. the u.s. -- our u.s. customers, to offset the slowing in the domestic market, are expanding export capacity so they can put coal into the seaborne market and take advantage of the strong
demand from southeast asia. that growth in export capacity that we have on the drawing boards right now will more than double our export capacity out of the u.s. it is changing the dynamics of the global market. it's certainly changing the dynamics of the u.s. market. so there's certainly some upside, significant upside in the u.s. coming from export potential. >> that's terrific, mike. i have to tell you i think it is darkest before the dawn for your company as it's been the last time 2008, 2009 when you came on at the exact bottom and said similar things. thank you so much, mike sutherlin, president and ceo of joy global. >> thank you, jim. >> mike's not a -- he's not a promotional -- by any means. these words sound roughly like what we heard last time we saw joy global bottom. take a look at that chart. see where it went last time. maybe it can do it again. after the break i'll try to make you more money. >> announcer: coming up, heartbreaker? break-ups mean more than sappy songs and heartache. we're talking cold hard cash. which big name in industrial construction could bring out
massive value by taking a wrecking ball to its corporate structure? cramer's digging for answers. and later, damaged goods? when corporate bigwigs walk, sometimes it pays to follow them out the door. two companies with recent high-profile departures. are their stocks lurking in your portfolio? find out when cramer takes them from the boardroom to solitary confinement in "the sell block." all coming up on "mad money."
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we've got to think long term. we've got to think long term. ♪ ♪ i want your revenge ♪ you and me could write a bad romance ♪ everybody's focused on the big picture. keying off the fed's much anticipated announcement of a new program to stimulate the economy today. we saw what that did to the market. yesterday's decision from the german high court. remember that? while all of this macro top-down stuff is very important, you should never forget that stock picking is all about what's known as the micro. it's about finding opportunities by analyzing individual companies from the bottom up. looking for stocks that work even if the fed's latest attempt to breathe life into the economy turns out to be less effective than we'd like or than i think it will be. that's why we can't get enough of break-up stories here on "mad money."
no, i'm not talking about a lady gaga-style bad romance. >> the house of pain. >> i mean companies with break-up stories, businesses that can create value for their shareholders with the snap of a finger, simply by deciding to split themselves up. despite what you may have heard from that late financial sage karen carpenter, breaking up is easy to do. and the terrific thing about a break-up play is it doesn't depend on the health of the economy or the actions of some government agency. the only thing that really matters to these stocks is that management gets it, that the people running the company understand that there is more money to be made by divvying up things rather than keeping the business together. in keeping with the breaking up theme, they are wedded to nothing and are open-minded about their intercompany relationships. hence, why keep coming up here and pointing out stocks with the
most break-up potential? because somebody needs to make these ceos understand the best way for them to create value for their shareholders is by slicing up their companies. so here's another one for you. a really classic breaking up is easy to do play. if only management would somehow embrace the idea. i'm talking about manitowoc, mtw. this is an industrial company with very old roots. it's been around for over a century. and right now i think it's a textbook case for how breaking up can unlock hidden or overlooked value. see, manitowoc has two high-quality businesses but they simply do not belong under the same roof. really i don't think you could design two different divisions to be more disparate if you tried. on the one hand there's manitowoc's old school crane business where it's the number one supplier of lattice boom crawler cranes as well as tower cranes and all-terrain cranes. i act like i know how to operate one. not. but they're also number one in boom trucks in the u.s. and cranes are of course all about construction as well as energy and infrastructure.
both here and abroad as this business gets 60% of its sales from overseas, manitowoc is everywhere. so that's one part of manitowoc. the part that wears a hard hat. the other side of manitowoc? food service. the company's one of the world's leading designers and manufacturers of commercial food service equipment, everything from refrigerators to ice makers, fry masters, grills, and beverage dispensers. this is the part of manitowoc that makes your fruit smoothie whenever you go to mcdonald's. manitowoc trades as a highly cyclical food company even though the food service accounts for two thirds of its operating profit. the stock will never get credit for it unless the company breaks itself up. it will never, ever, ever get credit for it. the reason is simple. the food side of things is a lot less economically sensitive, a lot less cyclical, so to speak, than manitowoc's crane biz, but nobody wants to buy a consistent maker of food service equipment that's joined at the hip with a
cyclical crane company whose results vacillate wildly depending on how the economy's doing. and frankly, now that construction might be coming back in this country, who the heck wants to own a crane company that's joined to the hip with the maker of restaurant equipment that won't shoot through the roof whenever the economy gets going? we need a darn hip replacement here! [ rim shot ] manitowoc has two companies that appeal to very different constituencies of investors. right now they're sitting under the same roof, which means the company doesn't have any natural consistency. yes, lincoln was right, a house divided cannot stand. so much higher. so much higher the stock could go if management decided to split things up. but let's actually calculate it. how much higher? let's start with the crane side. this business is still well off its peak but in the latest quarter the backlog grew 13% year over year. orders picked up and things seemed to be getting better. it could get even better if ben bernanke has his way. so if we valued manitowoc's crane biz using what people are paying for similar industrials like tarek, which i don't think is as high quality, this could
be a $2.5 billion business. i'm telling you, that's a fairly conservative number. it's not a super bullish one. how about manitowoc's food service side? if we valued this division based on what the market's paying for the average player in this space, the manitowoc food service biz would also be worth $2.5 billion. again i think that's a conservative number because manitowoc is not average. this is the best of breed food service equipment company in the world. so now we're going to put it all together. right now manitowoc has an enterprise value that's the market cap plus the debt on the balance sheet. in other words what an acquirer would have to pay for the company, its current price $3.9 billion. that's the whole thing. if the crane business is worth $2.5 billion as a stand-alone company and the food service business is worth 2.5 billion, then manitowoc could be worth $5 billion. if it simply decided to break itself up. that's a 28% premium over where it is right now. let me make the math even easier. $14.80 stock. i think a break-up could unlock more than $4 worth of value instantly. now, all bets are off unless you
think that it's worth frymastering cranes or icing construction booms. because icing a construction boom? broiling a crane? no. this is a must do pronto. so here's the bottom line. the market is not a fair place. it doesn't matter how good a company is. if it's not packaged correctly, its stock will not be correctly valued. manitowoc is a classic case of a company that's got the wrong packaging. a crane business and a food service equipment business simply don't belong under the same aegis. which is why i think mtw could go so much higher if management would just announce it was breaking the company up. the pen that would be used to split the company up is mightier than the crane. or to misquote eugene o'neill, the icemaker cometh. let's go to marty in florida, please. marty. >> caller: hi, jim. this is marty from staten island. >> hey, chief, what's up? >> caller: i'd like to know what do you think of ltd and also what do you think of the
possibility of them spinning off victoria's secret to create share value? >> i will tell you this. they have always been very, very, very aggressive at creating value and if they felt the stock was undervalued they will take such an action. i think limited is inexpensive, it delivers the numbers, and i say two thumbs up. ♪ hallelujah >> well done, lt. got a good one there, chief. getting back together? it's overrated. it will never, ever, ever, should ever happen that these two companies should be together. ltw can benefit from the break-up. the food side is less economically sensitive. and the crane side of the business is appealing too. oh, icemaker, please cometh. stay with cramer. >> announcer: coming up, damaged goods? when corporate bigwigs walk, sometimes it pays to follow them out the door. two companies with recent high-profile departures. are their stocks lurking in your portfolio? find out when cramer takes them from the boardroom to solitary
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you say the name of the stock i tell you whether to buy buy buy or sell sell sell. i do not know the stocks ahead of time. we play until we hear this sound and the "lightning round" is over. are you ready, skee-daddy? john in florida. >> caller: thank you for the show. and i definitely made money. >> there you go. >> caller: i want to know about exelon. >> i continue to do work to find out why people are so bearish on it. i don't see. chris in georgia. >> caller: boo-yah, jim. >> sweet. >> caller: i'm an optimist. i'm still holding on to my clean energy fuel, clne. am i crazy? >> the country doesn't have either politician saying point blank we just switched to natural gas as a surface fuel which is why that stock is stuck in the mud. let's go to marilyn in connecticut. marilyn. >> caller: hello. >> hey, marilyn, you're on. >> caller: okay. jim? >> yeah.
>> caller: i just wanted to tell you that i love you and i enjoy watching you every night. >> well, thank you very much. >> caller: you're welcome. and aside from that, i love the store chico's. i buy everything there. >> okay. chico's, i recommended it then i thought it got too hot. i was worried about it. it's still on my worry list. it's had a very big run. i prefer a pullback. let's go to renato in pennsylvania. renato. >> hey, jim. boo-yah. >> boo-yah, partner. >> caller: thanks for taking my call. listen, i wanted to get your feelings on pro logic. ticker symbol pld. >> it's a good one. it's a really good industrial real estate operator. i'm going to praise it. i need to go to chad in hawaii. chad. >> caller: boo-yah, jim. this is chad from honolulu, hawaii. >> great to have you. >> caller: natural resources. >> you know, it was recommended today by nomura which says the dividend is good for it. i'm going to go with nomura and say it's okay here. rob in virginia. rob. >> caller: yeah, rob in arlington.
>> nice. >> caller: i own altria group, ticker m.o. what are your thoughts? >> i always hate to recommend it because i always don't like smoking, but i've got to tell you, it is a great income producer. if you can stand it being politically incorrect. don in new jersey. >> caller: hi. boo-yah, cramer. >> boo-yah, local man. what's up? >> caller: i've got a favorite stock. hudson city bank. >> well, you're getting bought. hudson city's finished. it's time to ring the register. you're done. the finite nature of a takeover says you should ring the register and move on. let's go to albert in my home state of new jersey. albert. >> caller: hey, jim. boo-boo-boo-ya from sunny florida. >> nice. sunshine, hit me. >> caller: i'm having trouble with abbott laboratories. >> hit a 52-week high today. what's the matter? look, i think abbott's terrific. they're splitting the company up. it's doing really well. i own it for my charitable trust. had a really big gain.
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management matters. this is one of those things that i say all the time to you. but no matter how often i repeat myself, many people just don't get it because the concept can't be quantified. you can't put numbers to it. now, normally, deciding whether a company has good or bad management is a judgment call. it's based on your own subjective analysis. and that's just much harder to do than looking at those cold hard numbers and deciding whether a stock is cheap, say, based on its price to earnings multiple versus its growth rate, which is the traditional metric that we use on "mad money." but there's at least one occasion where evaluating a company's management takes no judgment whatsoever. when it's a totally objective call. and all you need to do is follow one simple rule to get it right. a rule that i laid out in "real money -- sane investing in an insane world." [ crash ] when high-level people like the cfo or ceo suddenly depart, you have to sell. you have to sell, sell, sell, even if the stock has already
been pummeled, because it's just not worth the risk of sticking around. this is what happened over the last weekend, not one but two momentum, meaning highly valued stocks, that i know had people taking a really liking to because i read your e-mails and know your calls. one is francesca's, fran. and the other is mellanox technology, mlnx. last week -- last tuesday, actually, francesca's, the rapidly growing women's retailer, reported a terrific quarter after the close. but it also announced that the ceo and co-founder was retiring from both the company and the board of directors. effective as of the end of the year. in response the stock, it got gutted. falling more than $6, or nearly 17% the next day. since then fran has rebounded a bit, but it's still down big from where it was before the news broke. you know what? i think that makes sense. i know some of you are probably thinking, jim, how important could one person be? the numbers are still the same, right?
sure. for now. the fundamental story is still basically intact, right? not so fast. when the ceo announces that he's leaving without providing for any kind of organized transition, that can often be a sign that the fundamentals are about to take a turn and it's not for the better. sometimes the simple fact of losing a great management team can cause a company to lose its way. or make it much more difficult for the business to navigate through troubled waters. however, i think we have to play by the same cautious rule of thumb here. especially because the departure of fran ceo and co-founder is only the latest in what appears to be an exodus of top-level people. the chief financial officer was actually terminated earlier this year. and the other co-founder announced she would retire back in july. that's too many executives in too short a time span, which just leaves too many question marks for me to feel at all comfortable with francesca's. i'm sitting here waiting. guess what? for the other shoe to drop. as well as the handbag and the
hats. how about mellanox? this israeli semiconductor stock has seemed unstoppable. right? this thing's just a bull. just rallying endlessly. right up until this monday, when their chief financial officer michael gray announced he'll be retiring for personal reasons. personal reasons. that's the worst. the stock quickly got banged down 20 points. from 120 to 100. and as much as i've liked the story, and you know i have. as much as the analysts have come out and defended it, at this point our rules say you've got to -- >> sell sell sell! >> mellanox. the stock's still real big. don't come after me. even if the decline is big. it would be great even if nothing happened. never hurts taking a profit. i actually think it's worse losing the ceo -- sometimes worse than losing a ceo is the cfo. because the cfo is the numbers guy.
now, understand, this is not really about francesca's or mellanox at all, people. it's possible that i'm being paranoid here and both companies will be perfectly fine. but as andy grove told us, only the paranoid survive. i'm being paranoid for a reason. because when high-level people left their companies abruptly in the past paranoia's tended to be a pretty darn good strategy. at the very least losing the ceo or the cfo means that the stock has suddenly gotten a whole lot more risky than it was before. let me ask you this. why would you ever want to take that risk when there are so many other companies out there where the top execs aren't leaving? even when losing executives isn't a sign of some kind of hidden chicanery, the fact is when there's uncertainty about leadership at the top it creates serious problems for the rest of the business. let's use some examples here. consider what happened to hewlett-packard after ceo mark hurd resigned back in august of 2010 after a sexual harassment scandal. it's been more than two years, and hp's still trying to get its act together. hurd was replaced by leo apotheker who was replaced last year and replaced by meg
whitman. with little strategy and little in the way of leadership hewlett-packard's stock still hasn't stopped falling. after hurd announced he was leaving you could have sold this thing for $35. that was a lot less than it was trading before they lost hurd but it's a heck of a lot more than the $18 and change where hewlett-packard's trading right now. like about double. how about yahoo? that had a classic leadership vacuum even since carol bartz was fired, the ceo last september. yahoo's on its third ceo since then with marissa mayer from google taking the helm. although the stock hasn't been hurt as much as you'd think. it's because in part it was already knocked down about as low as it could go. even when a stock is already tanking, losing its ceo can cause the damage to get much, much worse. and this one i'm thinking about is first solar. this company had already been battered in 2011 because the solar panel industry was doing so badly thank you to the chinese dumping. but last october just when you didn't think things could get any worse, first solar's ceo announced he was leaving. that crushed the stock 57 back to 43. as bad as that sell-off was in retrospect it was still one more
fabulous opportunity for you to get out of first solar given the fact that it now trades at $22 and change. and people still love it. i was out with someone last night. you've got to buy first solar. i don't buy stocks. but why first solar? now, look, not every company loses a ceo or cfo abruptly is about to fall off the cliff including maybe francesca and mellanox. but it's hard for these stocks to make up their initial losses. last year all scripts punched on some lousy numbers and the news that four members of the board and the ceo were leaving. not much of an opportunity. here's the bottom line. when high-level people leave a company suddenly the history is very clear. you should leave with them. no matter how hard their stocks have been already pounded or frankly how great the companies are. because it could be about to get worse. that's why i make it a rule to sell whenever a ceo or cfo leaves unexpectedly. and it's why both francesca and is mellanox they're now on the
sell block until we get more clarity on what's going on. yes, this is the one case where you do have to shoot first and then ask a bunch of questions at a safer, later date. let's go to bud in wisconsin, please. bud. >> caller: hi. i own stock in wellpoint health networks. >> mm-hmm. >> caller: and i recently heard that the ceo left abruptly in the middle of a deal to buy amerigroup for $4.5 billion. what do i do with the stock, jim? >> you know, this is -- i don't want to say there's an exception to the rule or even a corollary. but angela braley was considered to be hurting the stock. the ceo. now, i still don't want to now, i still don't want to own the stock because don't like the fact there was a transition. but i can tell you that was one where i debated putting her on the wall of shame and when the wall of shame ceos leave the stocks tend to appreciate in value. management matters. when a company's ceo leaves abruptly, expect the worst. fran and mlnx are now on the sell block until we get more clarity. shoot first, people.
you can find out about different industries, different trends, different models. sometimes you can glean it from the conference calls and research. other times you can catch some wisdom from an interview or two. and then sometimes very rarely you just plain out get taught. a great teacher comes to you and explains the way the world
really works and he does so in such a way where you don't even realize you're at school. mickey drexler, the brilliant ceo of j. crew is that kind of teacher. this morning mickey gave me and my colleague david faber an uber lesson in fashion retail and the american consumer. in the business mickey's known as the merchant prince for his tremendous ability to figure out what people in this country want to wear, first at gap stores in its heyday in the '80s and now j. crew the once public company he's taken private with astonishing success. but i think that title sells him short, frankly. mickey's really the king and i. yes, the e-y-e kind. because he's the king of the most important domain in retail, inventory and he has the best eye in the business for fashion. what's this broadway show of a teacher telling us? first he made it clear that all the consumer spending we've seen, all the success of so many retailers including his own, is based on discounting. everyone's doing it. some like costco as he pointed out are doing it better than others. those who have the best fashion, make it and merchandise it for less, in other words real value and for the right control of their inventory are hitting it out of the park because they're giving consumers the bargains they need and bargains they deserve. j. crew has been able to put up
double-digit same-store sales numbers without giving the merchandise away because mickey's one step ahead of the copycat posse and he intends to stay that way because he's viciously competitive and he wants to make money for himself and his partners which by the way is what business is about or at least it was last time i looked. retail's tough. mickey sowed doubts about the turnaround at jcpenney. drexler sits on the apple's board. mickey's teachings aside his throwaway lines are worth fortunes. like the ones about how much he misses steve jobs in the apple boardroom but he thinks tim cook's doing a fabulous job. teachers don't need to praise successors. right? he could have left it at jobs the fact that he didn't and chose to praise cook in glowing terms means stay long the horse that is apple. but the most important takeaway from the king and i it's this man's humility expressed by his own worry and the angst of getting it right. and by listening to the designers and most importantly you the customer. you see, the great teachers, they never stop learning either. stick with cramer. we're sitting on a bunch of shale gas.
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i'll have more awkward conversations than i'm equipped for because i'm raising two girls on my own. i'll worry about the economy more than a few times before they're grown. but it's for them, so i've found a way. who matters most to you says the most about you. massmutual is owned by our policyholders so they matter most to us. massmutual. we'll help you get there. tonight, my guy carl quintanilla's got a "crime inc." on medical insurance fraud. serious business that can put your money and your life in danger. don't miss it. didn't talk enough about the new apple iteration. you need to know that i will get it. i think it sounds great.